Written by Charlotte Hugman and Shamistha Selvaratnam, Research Analysts
Throughout history there have been major transitions that have led to transformations in the structures of society and the economy. The industrial revolutions across the world both in the 19th century and more recently have seen farm and home-based workers suddenly engaged in urban industrial and machine work. This triggered a host of negative impacts for both these workers and their communities.
So what does the next transformation look like? Although we don’t know everything, what we do know is that climate and people will be at the core. Large-scale decarbonisation of the economy and society is needed to fight climate change. But this will only succeed in a sustainable way if the transition to the low-carbon economy includes solutions that work for people. While exiting the ‘old’ economy, it’s crucial that we grow the ‘new’ by supporting the transition in ways that are environmentally sustainable, economically fair, and socially inclusive – that is, in a way that is ‘just’. The private sector has a critical role to play in facilitating the shift to a net-zero world to ensure that no one is left behind.
Companies themselves as well as their products, actions, and impacts are embedded deeply within our economic and social systems. Therefore, a systems thinking approach is key in order to tackle the systemic economic, environmental, and social challenges our world faces, to enable a just transition. The World Benchmarking Alliance (WBA) has identified seven systems transformations that are needed to put society and the economy on a more sustainable path. WBA will benchmark 2,000 keystone companies across these seven transformations by 2023. Two of these transformations are the Decarbonisation and Energy Transformation and the Social Transformation. The ‘just transition’ sits at the intersection of the need to decarbonise and transform our energy system and provide universal access to sustainable energy, and the need to achieve this in a way that leaves no one behind. Accordingly, it is WBA’s ambition to assess 450 of the 2,000 keystone companies on their contribution to a just transition by assessing their alignment with the Paris Agreement alongside their approach to addressing the social challenges of a low-carbon transition.
What is the ‘just transition’?
A just transition secures an equitable future for workers and their communities in the transition to the low-carbon economy, through social dialogue, social protection, and secure and decent jobs. The vision and process for a just transition involves a shared agenda between workers, communities, companies, and governments. It is also accounted for at the international level in the Paris Climate Agreement, and by investor-focused research, which recognises that the just transition provides the framework to connect climate action with the need for an inclusive economy and sustainable development.
Globally, there is unprecedented attention on the overlap between climate action and social rights: the widespread protests in France with the gilets jaunes, in Ecuador over ending fuel subsidies, and in Chile over transport fares and inequality, show how pressing these interconnected issues are. An estimated 28.4 million people work directly in or in support of the energy sector, with a further 1.4 billion workers identified as directly employed in sectors critical to climate stability. They and the communities dependent on them will be as much at risk of negative impacts during the transition away from fossil fuels to a renewables-based, low-carbon economy as the farm and home-based workers were in the industrial revolutions.
In 2020 alone, the oil and gas sector has shown one of the steepest declines in market capitalisation. $130 billion of investment has been dropped from the oil sector and tens of thousands of job losses have occurred, demonstrating just how important it is for industries to be prepared for disruption. An improperly managed low-carbon transition will cause violation of local communities’ and indigenous peoples’ rights, including violation of land rights and violence against communities, and violation of the right to a healthy and clean environment. It will also give rise to labour, health, and safety issues, as well as adverse impacts on communities through loss of work and income, and resulting migration. It is estimated that 6 million jobs will be lost through the low-carbon transition by 2030. However, there is the potential to create 24 million new ones. A just transition enhances resilience to these societal risks and plans for and provides positive social impacts from the movement to the decarbonisation and energy transformation, ensuring that the transition to a low-carbon economy occurs in a socially as well as environmentally just way.
Where will the solutions come from?
The private sector has a pivotal role to play in enabling a fair and equitable low-carbon transition, with companies uniquely placed to both plan and provide for protection of workers’ and communities’ rights. What’s more, companies are recognising this:
- 181 CEOs signed a statement with the Business Roundtable in August 2019 committing to leading their companies for the benefit of all stakeholders: customers, employees, suppliers, communities and shareholders.
- 854 companies are taking climate action with the Science-Based Targets initiative, with 350 having approved science-based targets in order to reduce greenhouse gas emissions.
As such, the 450 keystone companies that WBA has identified as having a disproportionate influence on our energy systems and ability to decarbonise, and will benchmark in relation to the just transition, can use their influence to lead the way on this transition.
What do the solutions look like?
Underlying the societal risks is an immense, systemic issue: that developed and developing societies are built around the use of fossil fuels. Fossil fuels provide more than 70% of energy globally. The industry not only provides millions of jobs and products, but millions of pensions and investments are tied to it and billions are spent on lobbying in the interests of fossil fuel companies. However, although income, employment, and investment flows are currently dependent on fossil fuels, emissions-induced climate change poses one of the biggest threats to humanity.
Acknowledging the complexity of this system and its feedback loops is crucial to achieving a just transition. To approach the issue with linear solutions – reducing emissions by cutting jobs, investments, and support networks – without acknowledging the resulting feedback loops would deepen inequality and violate social rights. Instead, measures should be adopted that account for feedback loops and effects that have long been seen as externalities, so that we can redesign this system in a just way. As Donella Meadows explains, “systems can’t be controlled, but they can be designed and redesigned”.
Given the critical role the private sector has to play in enabling a just transition, WBA looks forward to supporting and encouraging the just transition to a low-carbon economy through the development of benchmarks. In order to do so, we will first seek to understand the landscape of the transition and what this will mean for companies’ employees, the workers in their supply chains, and the communities impacted by their operations. We will then assess the degree to which keystone companies are enabling or preventing the transition to a low-carbon economy and whether they are approaching it in a way that is just by adequately managing the impacts on society. This data will motivate a ‘race to the top’ by businesses, incentivising and accelerating companies’ efforts towards facilitating a just transition, thereby ensuring that the corporate sector plays its part in making sure that no one is left behind in the transition.
 The world’s most influential companies that have the potential to drive one or more systems transformations.